Weekly currency forecast: UK election to drive GBP volatility?

The US dollar rose and fell last week as Federal Reserve comments and the latest US inflation data saw markets adjust expectations for a Fed interest rate cut in September.

Looking ahead, the looming UK election could drive most movement in the pound. Will a Labour landslide see Sterling gain ground?

Pound

The pound wobbled last week as two data releases from the Confederation of British Industry (CBI) painted a mixed picture of the UK economy. An upwards revision to UK GDP at the end of the week failed to boost GBP.

Looking ahead, the UK will head to the ballot box on Thursday in the country’s general election. Any surprises during the last days of campaigning could spark volatility, while Friday’s results may drive most movement. Will a Labour victory boost the pound?

Euro

The euro also wavered last week, as disappointing German data and political angst ahead of the first round of French elections weighed on EUR. However, the common currency’s negative correlation with a weaker US dollar helped lift the euro.

France will hold its second round of elections on Sunday so political jitters could pressure EUR. In the meantime, could an expected cooling of Eurozone inflation in June see the euro slide as markets bet on another European Central Bank (ECB) interest rate cut?

US dollar

Hawkish comments from a Federal Reserve official boosted the US dollar through the first half of last week. Weaker American data then dented USD, with a cooldown in US inflation on Friday seeing the ‘greenback’ end the week on the defensive.

The focus for USD investors this week will likely be the latest non-farm payrolls report, which is out on Friday. An expected slowdown in jobs creation could put some pressure on the ‘greenback’.

Australian dollar

The Australian dollar strengthened last week as hotter-than-forecast inflation data boosted bets on another rate hike from the Reserve Bank of Australia (RBA).

This week, the RBA will publish the minutes from its most recent policy meeting. If they reiterate the bank’s willingness to hike rates again, AUD could strengthen.